Banks can’t duct tape their way out of legacy system failures. Core modernization is a business imperative

Banking executives face a familiar dilemma: decades-old core systems technically constrain innovation while replacement costs can reach hundreds of millions of dollars and take years to implement. Meanwhile, fintechs launch new products in weeks while traditional banks remain trapped in months-long approval cycles.

The challenge extends beyond technology. “Most banks duct-tape capabilities onto what they already have, and eventually they break,” explains Ritesh Rihani, Vice President of Enterprise Banking at Galileo. “You’ve seen the number of outages we’ve had in the industry recently. That’s all happening because they put duct tape upon duct tape.”

The pressure to modernize comes from multiple directions. Customer expectations have evolved toward integrated experiences and ease of use and operational risks multiply as the pool of COBOL programmers shrinks through retirement. Regulatory compliance becomes increasingly difficult with manual processes and fragmented systems.

This podcast explores five critical dimensions of core modernization: balancing costs with competitive necessity, understanding operational and regulatory risks, implementing incremental transformation strategies, enabling product innovation, and unlocking the future potential of modern banking architecture.

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The ROI framework: Near-term wins enable long-term strategy

Core modernization requires a holistic approach that delivers immediate value while building toward strategic transformation. John Kraper, Principal at PwC, emphasizes starting with concrete benefits: “You want near term wins. We live in an age where I need instant gratification. I need instant ROI, or else everything else is scrutinized.”

The most successful modernization efforts focus on reducing mainframe expenses, improving specific customer journeys, and creating high-volume, low-risk workloads. These initiatives provide measurable returns that justify continued investment while building organizational confidence in the transformation process.

The strategic value emerges through flexible, API-based architecture that enables future scalability. “You’re going to spend some money now, but it’s to save money later,” Kraper notes. “It’s to build agility for later and take a lot of the risk that will inevitably cost money down the road by mitigating now.”

Operational risk: The hidden costs of legacy systems

Legacy core systems present escalating operational risks that extend far beyond technology concerns. The most immediate challenge involves talent retention and acquisition. Rihani describes the experience of a sales engineer who started with a large consultancy working on legacy platforms: “Six months later, he just ran for the hills. He says, I’m not doing this. I’m going to move somewhere more modern.”

The talent crisis creates a dangerous dependency on aging expertise. Banks rely on employees who have maintained systems for 30 to 40 years, with limited ability to transfer knowledge to younger staff who prefer modern development environments. This creates both continuity risk and competitive disadvantage in attracting technical talent.

Operational inefficiencies compound these challenges. Many banks have built entire business units devoted to manual processes that modern platforms could automate. Kraper points to banks that have realized “these business units alone, everything that they do that’s manual is something that can now be done in an automated way within a core banking platform.”

System reliability presents another critical risk. Rihani describes working with a top-five institution where “the mainframe goes down a few minutes a month” requiring expensive workarounds to maintain real-time payment capabilities. These infrastructure limitations directly impact customer experience and competitive positioning.

Incremental transformation: Building a bank one module at a time

Successful core modernization doesn’t require comprehensive replacement in a single project. Modern architecture enables incremental transformation that builds capabilities over time while maintaining operational continuity.

“It doesn’t have to be this massive undertaking upfront,” Kraper explains. “You don’t need to build an entire bank in a day. Build what you need for now and then the beauty of a modern construct is that you can switch out, you can integrate new capabilities, new services.”

This approach requires a fundamental shift in planning methodology. Rather than attempting to define all requirements upfront, banks can implement core capabilities that support immediate needs while maintaining flexibility for future expansion. The key lies in establishing API-first, event-driven architecture that enables rapid integration of new services.

The velocity advantage becomes apparent once modern infrastructure is established. Rihani describes showing a tier-one bank how development cycles could be dramatically accelerated: “We showed them how you could do that with a couple of pipes and how fast it could be done. They were literally shocked.”

Product innovation: From account-centric to customer-centric banking

Legacy systems constrain product innovation by organizing around individual accounts rather than comprehensive customer relationships. Modern core platforms enable banks to view customer relationships across the institution and beyond.

“Instead of looking at a client as an account, you can actually look at them as a sum of all the relationships that they have across the bank,” Rihani explains. This enables sophisticated product offerings that address customer needs holistically rather than through isolated products.

The innovation potential extends to embedded finance capabilities that integrate banking services into customer life experiences. Rihani envisions scenarios where “I swipe my card to pay my bill, and that sends an event to my bank, which then triggers something in my Tesla and gets started and heated up to the right temperature by the time I come out.”

Towards data-driven, event-enabled banking

Modern core platforms unlock capabilities that extend far beyond traditional banking functions. The foundation lies in data centricity and event-driven architecture that enables real-time decision making and automated processes.

“If you don’t have data centricity and event driven architecture built into your system, one of the key problems with legacy is that data is siloed as well,” Rihani notes. “Imagine a free flowing, event driven world where data just streams out into a central place. You have huge data sets available to be able to do machine learning, AI.”

This architecture enables banks to function as true partners rather than transaction processors. Kraper emphasizes the customer expectation: “I want to be able to go to my bank, and feel like my bank has always my best interests at heart, as opposed to my bank saying, this is the only product we have.” 

Modern platforms provide the technical foundation for these elevated service levels through real-time personalization and dynamic product configuration.

The ecosystem potential becomes particularly compelling as API-enabled architecture facilitates integration across industries. Banking services can embed naturally into commerce, transportation, healthcare, and entertainment experiences. 

Kraper highlights the competitive necessity: “What if there’s a new product out in five to seven years and the bank has said, we’re maxed out. We can’t integrate that, so you’ll have to go to a different bank. No bank wants to have to say that to their customers.”